The Producer Price Index for finished goods fell by 0.3 percent in October as energy prices dipped.

Business inventories for September were unchanged, sales increased by 0.6 percent.

The Empire State Manufacturing Survey for November showed stable manufacturing conditions.

Undaunted by flat-lined incomes, shoppers forged ahead in October driving retail sales up by 0.5 percent, after a strong 1.1 percent gain in September. The income constraint means that households are willing to add debt or reduce their saving rate in order to keep spending more. We saw both mechanisms in play in September and may well see the same when the October income and consumer credit data are published. A solid start to fourth quarter spending is supportive of Q4 real GDP growth. If the pace of spending stays solid through November and December we could see 2011Q4 real GDP growth in the range of 3.0 to 3.5 percent. Retail auto sales gained 0.4 percent in October after surging by 4.2 percent in September. Ex-auto retail sales were up 0.6 percent in October, driven by a sizeable 3.7 percent rise in electronics and appliance store sales. It looks like strong iPhone sales dialed up the headline numbers. Sporting goods sales were up by 1.3 percent for the month.

Price pressure abated in October. The producer price index for finished goods declined by 0.3 percent as energy prices slid by 1.4 percent at the wholesale level. The core producer price index (all items less food and energy) was unchanged for the month. The consumer price index for October will be released tomorrow. We expect to see a similar pattern there. Higher oil prices through mid-November now threaten to counteract positive inflation reports for October. Total business inventories were unchanged in September after seasonal adjustment. Retail inventories fell by 0.1 percent, adding weight to the theory that retailers are lean heading into the holiday shopping season. The Empire State Manufacturing Survey showed that business conditions for New York area manufacturers were stable through early November. Interestingly, the inventories index fell deeper into negative territory in November, marking the fifth consecutive month of inventory decline. This raises the possibility that we will see less of an inventory bounce in Q4 than implied from the weak Q3 inventory data.

Market Reaction: Equity markets are up slightly but still skittish from developments in Europe. Treasury yields are down at the long end. Oil is still climbing, now up to $99.05/barrel. The dollar is down against the yen and up versus the euro.